Carney vows to take action on the BTL sector

mwpt

Graham_Devon wrote: »

Nail hit head.

People tend to ignore everything that was done to keep things afloat when looking back at what happened after 2007.

Is it confirmation bias or some other syndrome? Investors love to attribute to smarts what is actually luck.

Rates can't get much lower for mortgage borrowers. The base rate can, but I doubt there will ever be a situation whereby the bank is paying you interest on your mortgage payments.

So any new crisis is not going to see huge reductions in mortgage payments.

We may see all manner of intervention, but I can't see how any of it will help landlords...bar massive state subsidy.

Sadly, I've become so cynical about it all that I would not be surprised to see rates dropped to zero, state HelpToContinueToOwn for existing owners in the form of, just for eg. 20% interest free state loans to top up any negative equity, blah blah. They can invent whatever they like. They've already set the narrative in this matter, you can't lose on property because the state will bail you out.

michaels

As noted above - in 2007/8 Reduced interest rates and falling prices both increased BTL yields plus lower prices implied an increased possibility of capital gaisn going forward.

If it looked like long term that the returns on holding property were going to be much lower than other safer investments in govt debt or even negative why would people hold the asset class as an investment (where as holding property as a home is much less likely to be influenced by rates or return although it should be remebered than in the early 90s when capital values were uncertain and interest rates were high many choose to remain in rented rather than getting onto the housing ladder).

cells

so has the argument now gone from..... BTLers might, probably will, panic sell in a downturn making everything much worse

to

well they did not do that this time in 2008-2009 because interest rates fell and maybe the next recession interest rates wont fall so its still a problem?

cells

michaels wrote: »

If it looked like long term that the returns on holding property were going to be much lower than other safer investments in govt debt or even negative why would people hold the asset class as an investment

Firstly landlords mostly sell and buy from other landlords (in inner London its imo >90%). So how is making BTL less attractive going to help prices not fall in a recession?

Anyway the reason BTL sector does not panic sell (as evident by the lack of bigger hpc in higher % BTL areas in 2008-2009 vs owner areas) is varied but in no particular order

Transaction costs are very high. Not only in terms of money to buy and sell but also in terms of the cost to break finance. To panic sell a £500,000 home with £350k mortgage in London will cost you £10k in early repayment (3%). £7.5k in estate agent fees. Maybe £5k lost void and rents and trigger CGT. Nearly £25k down

Time lags. By the time you know house prices are falling they are already down 10%. To sell and get back into the market 2-4 years later is going to be a round cost of some £50,000 and lots of time stress selling and buying. So you need to figure at least a total fall in house prices of 30% or more to make it worthwhile (10% already fallen, 10% to cover your costs and 10% to make a profit). House prices dont fall in that sort of scale and few landlords would bet on a >30% fall

Bigger risk selling in a downturn: When house prices fall the economy is in $it. Sell your £500,000 house and put it into We-Might-Be-Bust-Next-Week bank? No thanks I would rather lose 20% on property than lose potentially 100% in northern rock or shares in HBOS



simply put the last recession showed us BTL did not rush for the exit in the recession. If anything from 2008-2010 the BTL sector (with and without mortgage) rushed to buy and propped up prices from falling more. I believe the rental sector expanded by >500,000 in those two years alone. One landlord I know from another forum says he only got into BTL when a lot of his money looked lost to the Icelandic banks when he got it back he piled into property thinking it a much safer bet than keeping it in the banks. People like that gearing up with 50-75% LTV mortgages would help step or stop house prices falling. not contribute to it

So I think mr canada is making a mistake if he thinks BTL run for the exit when prices fall. property is not liquid shares with imaginary stock to use for shorting

Graham_Devon

cells wrote: »

Firstly landlords mostly sell and buy from other landlords (in inner London its imo >90%). So how is making BTL less attractive going to help prices not fall in a recession?

Anyway the reason BTL sector does not panic sell (as evident by the lack of bigger hpc in higher % BTL areas in 2008-2009 vs owner areas) is varied but in no particular order

Transaction costs are very high. Not only in terms of money to buy and sell but also in terms of the cost to break finance. To panic sell a £500,000 home with £350k mortgage in London will cost you £10k in early repayment (3%). £7.5k in estate agent fees. Maybe £5k lost void and rents and trigger CGT. Nearly £25k down

Time lags. By the time you know house prices are falling they are already down 10%. To sell and get back into the market 2-4 years later is going to be a round cost of some £50,000 and lots of time stress selling and buying. So you need to figure at least a total fall in house prices of 30% or more to make it worthwhile (10% already fallen, 10% to cover your costs and 10% to make a profit). House prices dont fall in that sort of scale and few landlords would bet on a >30% fall

Bigger risk selling in a downturn: When house prices fall the economy is in $it. Sell your £500,000 house and put it into We-Might-Be-Bust-Next-Week bank? No thanks I would rather lose 20% on property than lose potentially 100% in northern rock or shares in HBOS



simply put the last recession showed us BTL did not rush for the exit in the recession. If anything from 2008-2010 the BTL sector (with and without mortgage) rushed to buy and propped up prices from falling more. I believe the rental sector expanded by >500,000 in those two years alone. One landlord I know from another forum says he only got into BTL when a lot of his money looked lost to the Icelandic banks when he got it back he piled into property thinking it a much safer bet than keeping it in the banks. People like that gearing up with 50-75% LTV mortgages would help step or stop house prices falling. not contribute to it

So I think mr canada is making a mistake if he thinks BTL run for the exit when prices fall. property is not liquid shares with imaginary stock to use for shorting

Have you just ignored the fact that interest rates fell? Many saw their mortgage payments fall to a 3rd of what they were.

You can't keep ignoring the completely obvious and give some other vague reasons about putting money in northern rock...surely?

cells

Graham_Devon wrote: »

Have you just ignored the fact that interest rates fell? Many saw their mortgage payments fall to a 3rd of what they were.

You can't keep ignoring the completely obvious and give some other vague reasons about putting money in northern rock...surely?

So you think the reason landlords did not jump ship in 2008-2009 but instead the rental sector grew by >500,000 was because interest rates fell?

Its a good idea but I don't think its the case. For a start only a few Landlords ejoyed long term cheap trackers that saw their payments crash. most Landlords would have gone from ~5.5% interest to ~4% interest during 2009-2012.

Landlords did not sell because to sell a property is costly, to re-enter the market is costly, to time a crash is difficult, and there are no safe assets in a crash to run to.

I did not sell in 2008-2009. Like >500,000 other Landlords/Properties I bought during those two years.


So you can keep insisting all you like that Landlords will rush to the exit making things worse in a downturn. The reality is not only did that not happen in 2008-2009 the landlords were rushing to add >500,000 units to the rental stock. The areas with more BTL recovered stronger and marginally faster than the areas with little BTL

cells

The Canadian is wrong I think he probably hasn't even looked at what actually happened with BTL in 2008-2009 else his comments would have been LANDLORDS CONTRIBUTED TO THE FALL IN PRICES IN THE LAST DOWNTURN rather than, Landlords might be more willing to sell into a falling market making things worse.

He is just guessing whereas he should be trying to find actual data

Graham_Devon

cells wrote: »

The Canadian is wrong I think he probably hasn't even looked at what actually happened with BTL in 2008-2009 else his comments would have been LANDLORDS CONTRIBUTED TO THE FALL IN PRICES IN THE LAST DOWNTURN rather than, Landlords might be more willing to sell into a falling market making things worse.

He is just guessing whereas he should be trying to find actual data

Who are you trying to convince lately? Only it seems it's yourself.

Generali

cells wrote: »

So you can keep insisting all you like that Landlords will rush to the exit making things worse in a downturn. The reality is not only did that not happen in 2008-2009 the landlords were rushing to add >500,000 units to the rental stock. The areas with more BTL recovered stronger and marginally faster than the areas with little BTL

You're missing the point.

The point isn't that BTL investors will rush to the exit en masse, it's that they might and if they do it's a big problem.

This is about anticipating and mitigating risk, not about predicting the future.

cells

Generali wrote: »

You're missing the point.

The point isn't that BTL investors will rush to the exit en masse, it's that they might and if they do it's a big problem.

and if they dont rush to the exists, you have needlessly burdened the sector with more rules regulations and taxes to appease a tingle in the mind that says what if

Its like Hamish thread about protecting the world from asteroids.

landlords did not rush out en mass last time prices fell, they did the exact opposite.